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Are 'boutique' hospitals creating an 'elite' health care system?

Lawmakers in several states (including Arizona, Louisiana, New Mexico, Ohio, and Washington) are pushing to limit the number of so-called ‘boutique’ hospitals that specialize in expensive procedures for people who can afford them, contending that these niche facilities could lead to diminished health care for the general public. The hospitals in question are for-profit, physician-owned facilities that specialize in areas such as cardiology or orthopedic surgery.

Specialty hospitals are one of the fastest-growing trends in health care. The for-profit ventures specialize in specific high-revenue procedures including cardiac, cancer and orthopedic care. There are about 100 specialty hospitals operating nationwide, according to Nurse Week magazine.

Lawmakers fear that if the number of these specialty hospitals continues to grow, they'll threaten the bottom line and ultimately the quality of care in general hospitals by leaving them to care largely for indigent patients.

A report by the General Accounting Office found that specialty hospitals are a “small, but growing segment of the health care industry.” As of February 2003, there were more than 92 specialty hospitals across the United States. The number of specialty hospitals has tripled since 1990, though they represent only 2 percent of acute care facilities. Proponents say boutique hospitals offer higher quality care, more amenities, and an alternative to general hospitals. Critics say these facilities drive up health care costs and diminish the quality of care by siphoning money and patients away from general hospitals.

"General hospitals say they need to perform lucrative procedures, such as heart surgery, to pay for unprofitable services like burn units, mental health, or emergency room services, which most specialty hospitals are not required to provide," states the GAO report.

Contrasting Viewpoints:

Pro: "We'd like to see less government intrusion into the ability of physicians to create innovative delivery systems." Tim Maglione, senior director of government relations at the Ohio State Medical Association.

Con: "This trend can really hurt the full-service hospitals," says Tom Scully, president of the Federation of American Health Systems.

"Unfortunately, there are certain services that you can never even come close to recovering your cost for. And the ones that have traditionally been very well compensated are precisely the ones these specialty hospitals are (serving),” said Ellen Pryga, director of policy development at the American Hospital Association, a national group that represents about 5,000 hospitals, including specialty hospitals.

Some doctors groups, such as the American Surgical Hospital Association, argue that "physicians are interested in specialized hospitals because of their efficiency and high quality, not investment returns." Tim Maglione, senior director of government relations at the Ohio State Medical Association told Stateline.org: "We'd like to see less government intrusion into the ability of physicians to create innovative delivery systems."

Tom Scully, president of the Federation of American Health Systems (FAHS), offers a contrasting view, "This trend can really hurt the full-service hospitals.  It's a very dangerous trend." FAHS represents 1,700 privately owned and managed hospitals.

"A niche hospital can come in and siphon off the procedures that pay well, chipping away at the financial stability of the full-service community hospital," adds Rick Wade, senior vice president for the American Hospital Association.

Possible worst result: You have a car crash and look for the nearest emergency room but find a "Closed" sign because of competition from a boutique down the street. That happened in Phoenix, says Scully, where a regional hospital was basically run out of business by a small heart hospital.

Surgeon Sternlieb counters that boutiques challenge full-service hospitals to give patients more services. "Competition is key to better service for patients."

"Competition is key to better service for patients."

And the competition is multiplying. There are roughly 30 heart boutiques around the nation, with a similar number of orthopedic boutiques and a scattering of other specialties. Legislative response unsuccessful thus far

A number of legislative responses have been debated, but few have become law.  Lawmakers continue to struggle with how best to determine how much government involvement will maintain a fair and competitive health care market.

"When specialty hospitals are an issue in the legislature, there is debate about whether these new hospitals are natural responses of the free market to customer demand or whether they are exploiting a loophole in existing laws," said Trudi Matthews, a health policy analyst at The Council of State Governments.

In the Arizona, Louisiana, New Mexico and Washington legislatures, bills were introduced that would have used licensing rules to require specialty hospitals to provide at least some emergency room services, but none have been signed into law.

In Louisiana, where there are about a dozen specialty hospitals, state Sen. Tom Schedler (R) has introduced three unsuccessful bills since 2003.  One bill would have required that a doctor disclose ownership of a specialty hospital when referring a patient there.

The federal Stark law prohibits doctors from referring Medicare patients to health care facilities in which they have financial investments, but it doesn't apply to hospitals.

Schedler said he was "disappointed" about his legislation's fate and said that reimbursements from the government and private insurers to specialty hospitals should be cut because they are not required to provide emergency room or indigent care.

"If you did that, I think you'd see the proliferation of these (hospitals) come to a screeching halt," Schedler said.

The debate over boutique hospitals is especially prevalent in states like Louisiana where there is no "certificate of need" (CON), a process that regulates hospital building and expansion or investment in new technology. About two-thirds of states have CON laws, but they vary greatly in their strength, Richard Cauchi at the National Conference of State Legislatures said.

A measure in Oklahoma passed the Legislature in 1999 that requires specialty hospitals to pay a fee if they have fewer than 35 percent of their patients on state or federal government health care assistance, according to The Council of State Governments.

Boutique hospitals impact on insurance coverage, premiums



Physician-owned specialty hospitals are an example of changes that have the potential for adding substantial costs to the premiums for health insurance for all employers, including state government and employees. Boutique hospitals are owned and governed by investors to make a profit. Seventy percent of these hospitals have some form of physician ownership, including doctor investors who refer patients to their hospital, according to Stephen Loebs, professor of health services management and policy at Ohio State University. Loebs contends that employers who pay the majority of health insurance premiums have significant leverage. They have the power to design employee health benefit plans to include or exclude specialty hospitals. They can decide if specialty hospitals are beneficial and add value for their workers. The most effective way for employers and employees to exert their leverage is to form a coalition to become informed about the range of issues since they impact costs, quality and access and develop unified positions, adds Loebs.

"Employers, who pay the majority of health insurance premiums, have significant leverage. They have the power to design employee health benefit plans to include or exclude specialty hospitals.”

“What worries me about boutique medicine is that it represents a fracturing of the social compact where everybody is cared for under a common covenant,” says Dr. Mullan. “The whole notion of health insurance is that we have a risk pool and that when we are well, we pay into it, and we get no benefit from that. But when we are sick, we are taken care of and other people’s money pays to cover our expenses.

“The notion that people can buy out of health insurance, or not be at risk with everybody else, begins to pull apart the notion that we are at risk together,” he continues. “Boutique medicine is the most ‘in your face’ version of ‘I don’t want to be at risk with everybody else, let me buy my way out of this one.’”

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